(BFM Bourse) – The German bank raised its buy advice on the company this Monday. The financial intermediary is convinced by the emphasis placed on debt reduction by the Derichebourg family as well as by the low valuation of the stock.
Elior has suffered in recent years, with its share price collapsing by more than 80% in five years. The collective catering group has been weighed down by the pandemic but also by inflation in food, energy and wages, while its income structure is less conducive to the passing on of price increases than those of its competitors. Compass and Sodexo. Elior in fact has a higher exposure to the public sector, with which it is inherently more difficult to iron out cost inflation in contracts.
But after long months of lean times on the stock market, a shift may be taking place, at least according to certain analysts. TP ICAP Midcap thus returned to purchasing the stock in mid-November, judging that the company’s recovery will “rapidly materialize”.
This is thanks in particular to the new management of the company, Daniel Derichebourg having taken over as CEO of Elior this year, after his group, Derichebourg, became the company’s reference shareholder with 48.4% of the capital. . Remember that this increase in capital took place in exchange for the contribution to Elior of the “Derichebourg Multiservices” (DMS) division, which offers various services to businesses (hygiene, security, reception, maintenance). “Mr Derichebourg seems to us to be the right man to turn around catering (collective catering, Editor’s note), wrote TP ICAP Midcap.
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Heading towards debt reduction
Another renowned financial intermediary displayed its confidence in Elior this Monday. Deutsche Bank raised its recommendation on the stock from “hold” to “buy.” This allowed the stock to gain 1.5% around 2:10 p.m., after rising to more than 7.6% at the start of the session.
Elior published results last week in line with expectations for its entire 2022-2023 financial year, ended at the end of September, although with slightly better revenues than expected.
For Deutsche Bank, the financial year ending in 2023 marked “a year of transition”. Now “the worst is probably over” and the company is focusing “on profitable growth and debt reduction”. Elior has, in fact, made its debt reduction an absolute priority. While its net debt to gross operating profit ratio stood at 5.4 times at the end of September 2023, the company intends to return to 4 times at the end of September 2024 then to 3 times at September 30, 2026.
These prospects appear achievable in the eyes of the German bank, which estimates that the group should, in the current financial year, generate a positive cash flow, for the first time in four years.
The solid grip of Derichebourg
“Debt refinancing, considered throughout the last three years as the main risk for Elior, now seems well under control. No major refinancing is necessary before 2026, and the group should also continue to be able to respect its covenants (the commitments made to creditors in terms of debt ratio, Editor’s note)”, explains Deutsche Bank.
“Elior now seems to be under the solid control of the Derichebourg family, which has revised upwards its initial synergy forecasts (drawn from the contribution of DMS, Editor’s note) from 30 million to 56 million euros, and which seems to grant much more attention to both commercial relationships with clients and the profitability of each contract,” continues the German bank.
“The fact that the group’s debt leverage is (more than ever) at the center of the family’s concerns, benefiting from the support of the banks, also represents a more positive element,” insists Deutsche Bank.
Ultimately, given this increased focus on deleveraging, more credible prospects, and the low valuation of the stock, Deutsche Bank is therefore more positive. Its target of 3.4 euros gives the stock a potential appreciation of more than 40% at the closing price on Friday evening.
Julien Marion – ©2023 BFM Bourse
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